Maintaining Resilience, Adaptive Policy Measure

Transcription

1 Republic of Indonesia Maintaining Resilience, Adaptive Policy Measure October 2017

2 About Investor Relations Unit of the Republic of Indonesia Investor Relations Unit (IRU) of the Republic of Indonesia has been established as a joint effort between Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since The main objective of IRU is to actively communicate Indonesian economic policy and to address concerns of investors, especially financial market investors. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is administered by International Department of Bank Indonesia. However, day-to-day activities of IRU are supported by all relevant government agencies, among others: Bank Indonesia, Ministry of Finance, Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of State Owned Enterprises, Ministry of Energy and Mineral Resources and Financial Services Authority. IRU also convenes an investor conference call on a quarterly basis, answers questions through , telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit Republic of Indonesia Website: Contact: Wiwit Widyastuti (International Department - Bank Indonesia, Phone: ) Syaifullah (Fiscal Policy Office - Ministry of Finance, Phone: ) I Gede Yuddy Hendranata (Directorate General of Budget Financing and Risk Management - Ministry of Finance, Phone: ) contactiru-dl@bi.go.id This Presentation Book also can be downloaded from: 1

3 Overview 1 Institutional and Governance Effectiveness: Accelerated Reforms Agenda with Institutional Improvement 4 Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Management 2 Economic Factor: Strong and Stable Growth Prospects Remain Intact 5 Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector 3 External Factor: Improved External Resilience 6 Progressive Infrastructure Development: Strong Commitment on Acceleration of Infrastructure Provision 2

4 Section 1 Institutional and Government Effectiveness: Accelerated Reforms Agenda with Institutional Improvement

5 Improving Global Perception with recent improvements on global competitiveness and governance indicator Global Competitiveness Index 1 Ease of Doing Business 2 Rank 20 Rank Higher rank is better (rankings at the time of annual report publication) Higher rank is better Indonesia India Morocco Romania Hungary Indonesia India Morocco Romania Hungary World Governance Indicators 3 Corruption Perception Index Score Higher score is better Higher rank is better Voice and Accountability Government Effectiveness Rule of Law Political Stability/Absence of Violence Regulatory Quality Control of Corruption Morroco Hungary Indonesia India Romania 1. Source: World Economic Forum The Global Competitiveness Report ; 2. Source: World Bank Doing Business Report; 3. Source: World Bank; 4. Source: Transparency International Corruption Perceptions Index 2016 Report 4

6 Improving Global Perception Indonesia has improved its competitiveness among ASEAN members... Indonesia is inching its way up the competitiveness ladder, moving ahead 5 places Indonesia s transport infrastructure continues to improve supported by massive infrastructure projects Rank Countries GCI Rank Change in Rank Rank Countries Transport Infastructure Index Change in Rank 1 Singapore Singapore Malaysia Malaysia Thailand Indonesia Indonesia Thailand Brunei Darussalam Brunei Darussalam Vietnam Vietnam Philippines Philippines Cambodia Cambodia Lao PDR Lao PDR Source: World Economic Forum The Global Competitiveness Report

7 Indonesia is Now Fully Rated as Investment Grade Country BBB- BB+ Below Investment Grade JCRA Fitch Moody s R&I S&P Feb 2017, Baa3, Outlook Revised to Positive Baa3 / Positive We changed the outlook on Indonesia's sovereign rating to positive from stable to reflect emerging signs of a reduction in structural constraints, including its level of external vulnerability and the strength of its institutions. BBB- / Positive July 2017, BBB-, Positive Rating Affirmed BB BB- Indonesia's ratings balance a low government debt burden, favourable growth outlook and limited sovereign exposure to banking sector risks with weak - but strengthening - external finances compared with 'BBB' category peers and some lagging structural factors, including governance standards and a still difficult - but improving - business environment. BBB- / Stable B May 2017, BBB-, Rating Upgraded We raised the long-term sovereign credit to BBB- as the Indonesian authorities have taken effective expenditure and revenue measures to stabilize the public finances despite the terms of trade shock. BBB- / Positive BBB- / Positive April 2017, BBB-, Outlook Revised to Positive Indonesia's macroeconomics stability has been maintained for several years. Its external position is also improving,. fiscal deficits have been reined in and government debt is low. In light of such factors, coupled with improved policy management, R&I has changed the rating outlook to Positive. March 2017, BBB-, Outlook Revised to Positive JCR has changed the rating outlook from Stable to Positive, based on the recent improvement on the investment climate promoted by a series of Economic Policy Packages & the containment of private external debt brought by Bank Indonesia s prudential regulations on external borrowing. 6

8 Total Investment / GDP (%) Indonesia Remains the Investment Destination of Choice The Economist: Indonesia among the top 3 destination for attracting investors in Asia (January 2017) 1 Indonesia Enjoys Large Investments Relative to Peers within the Region 2 China India Indonesia Vietnam Phillipines Thailand Myanmar Malaysia Australia South Korea Hong Kong Japan Singapore Taiwan * * 2017 estimation India Indonesia Malaysia Philippines Thailand Vietnam UNCTAD: Indonesia is listed as the top 5 prospective investment destination in the world (June 2017) 3 United States (1) China (2) India (3) Indonesia (8) Thailand (14) Brazil (7) United Kingdom (4) Germany (5) Mexico (7) Philippines (9) Spain (25) Vietnam (14) Singapura (18) Canada (18) Australia (13) Source: The Economist Asia Business Outlook Survey Source: IMF World Economic Outlook, Database April % of executives responding (x) = 2016 ranking JBIC: Amongst ASEAN countries, Indonesia is the most preferred place for business investment (December 2016) 4 India China Indonesia Vietnam Thailand Mexico USA Philippines Myanmar Brazil Malaysia Singapore Russia Korea Turkey Source: United Nations Conference on Trade and Development (UNCTAD) World Investment Report Source: JBIC Outlook for Japanese Foreign Direct Investment (28th Annual Survey) % of surveyed who consider each country has promising prospects

9 National Strategic Development Plan (Nawa Cita) The 3 Dimensions on Economic Development Human Development Education Health Housing Character Priority Sector Development Food Security Energy & Electrical Security Maritime & Marine Tourism & Industry Water Security, Basic Infrastructure & Connectivity Equitable Development Inter- Income Group Inter-Region: (1) Rural Area, (2) Periphery, (3) Outside Java, (4) Eastern Area. Necessary Condition Legal Certainty & Law Enforcement Security & Order Politic & Democracy Governance 8

10 Human Capital Oppor -tunity Land Equitable Economy Policy The Equitable Economy Policy announced in April 2017 embodies national economic transformation to successfully overcome middle income trap and achieve the status of a developed country in the long-term the Three Key Pillars and Quick Win Programs Social Forestry The Ministry of Environment and Forestry (KLHK) will distribute access to social forest management covering an area of 211,522 ha for 48,911 families with total permits of 134 Initial focus will be on 11 villages with a total area of ha for 9,411 households Agrarian Reform and Transmigration Land Legalization Transmigration land of 220,000 ha and 3,800 ha under the National Agrarian Operation Project (PRONA) is ready to be legalized from a total of 4.5 million ha, while 23,000 ha of displaced land and 707,000 ha of forest disposal are also ready to be redistributed from a total of 4.5 million ha The Land Object of Agrarian Reform (TORA) will be expanded to several provinces, including Banten, West Java, Central Java, Riau, West Kalimantan, West Sumatra, North Sumatra, and Maluku Affordable Housing for the Urban Poor Committed to housing development within urban areas that are well connected to the center of activity, economic resources and public transportation for the urban poor Core housing policies, among others, include provision of land for affordable housing (land availability), implementation of Housing Scheme for MBR (social housing), and the Housing Financing Scheme Targeted Development of Key Sectors Focused on addressing issues related to the tax system, development of manufacturing and IT industries and retail sector Improve the competitiveness of the retail sector and strengthen synergies between traditional and modern retail Vocational Training and Labour Markets Vocational and labor policies structured for capacity building of human resources, especially to align with industry needs and to support government priority programs Policy steps will be taken by the government to draft and improve on the road map for vocational education and training, through reclassification and prioritization of business fields and positions Job matching program that will focus on strengthening vocational programs for industries Vocational schemes in place for the automotive, tourism and transportation sectors Source: Coordinating Ministry for Economic Affairs 9

11 The Economic Policy Packages To improve national industry competitiveness, export and investment to generate significant economic growth Harmonizing Regulations Simplifying Bureaucratic Process Ensuring Law Enforceability Phase I (9 Sept 15) Improving national industry competitiveness Phase II (29 Sept 15) Easing permit requirement and simplifying export proceeds requirement Phase III (7 Oct 15) Boosting investment, spurring exports, and maintaining people s purchasing power Phase IV (15 Oct 15) Simplifying wage formula and expanding loans for small business Phase V (22 Oct 15) Improving industry and investment climate through tax incentives and deregulation on sharia banking Phase VI (5 Nov 15) Stimulating economic activities in border areas and facilitating strategic commodities availability Phase VII (7 Dec 15) Stimulating business activities in labor-intensive industries nation-wide through incentives in the form of accelerating land certification process for individuals Phase VIII (21 Dec 15) Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation industries Phase IX (27 Jan 16) Accelerating electricity generation, stabilizing meat prices and improving rural urban logistics sector Phase X (11 Feb 16) Revising the Negative investment List and improving protection for SMEs Phase XI (29 Mar 16) Stimulating national economy through facilitation to SMEs and industries Phase XII (28 Apr 16) Improving Indonesia s rank on Ease of Doing Business (EODB) Phase XIII (24 Aug 16) Low Cost Housing for Low-Income Communities Phase XIV (10 Nov 16) Roadmap for E-commerce Phase XV (15 Jun 17) Development of Business and Competitiveness of National Logistics Service Providers Source: Coordinating Ministry for Economic Affairs 10

12 Boosting the Competitiveness through Logistical Efficiency..15th Economy Policy Package has been launched Policy Goals Policy Targets 1 Import duty for 115 types of ship s spare parts and components 0% Strengthen the Institution of the Indonesia National Single Window (INSW) 2 Opportunities for national shipping to serve export and import transportation of around USD 600 million/year Provide Market Opportunities for Shipping Companies, Marine Insurance, and National Ship Maintenance Businesses Increase Competitivenes of Logistic Service Providers units of new ships worth New employment opportunity of 2,000 sailors USD 700 million Improve the Regional Government s role in development of Regional Logistics System to control inflation and reduce post-harvest product damage up to 30% Source: Coordinating Ministry for Economic Affairs 11

13 Enhancing Business License Service Standard Presidential Regulation to Accelerate Ease of Doing Business has been launched Policy Goals Improve efficient, streamlined, & integrated business license service standards 1 2 Accelerate the business licensing process Provide business licensing process assurance in terms of the costs and lead times 3 4 Increase coordination & synergy between central & regional government Overcome the barriers to doing business in Indonesia 5 6 Implement integrated licensing process (single submission) 1 st Phase 2 nd Phase Main Policy Forming a Task Force to identify & overcome the endto-end licensing barriers Implementing a licensing checklist for Special Economic Zones (KEK), Free Trade Zones (FTZ), Industrial Zones & Tourist Zones Business license regulatory reforms Implementation of the Single Submission system Utilizing data sharing Source: Coordinating Ministry for Economic Affairs 12

14 Thematic Policy Issues on Deregulation Six policy issues under Packages I-XV: improvement of widening of efficiency of improvement of expansion of improvement of industry competitiveness investment logistics sector tourism sector export society s purchasing power Next Phase of Policy Packages based on Sectoral and Thematic Issues Education and Vocational Training Logistics Agrarian reform Energy Industry, Manufacture, Tourism, Fishery & Service sector Food Invention, Innovation and Creative Economy Source: Coordinating Ministry for Economic Affairs 13

15 Progress of the Economic Policy Packages* TOTAL INITIAL REGULATIONS REVOKED REGULATIONS TOTAL REGULATIONS 11 I XII I XV SET % TOTAL 42 PRESIDENTIAL PRESIDENTIAL LEVEL SELESAI 170 TOTAL FINISHED MINISTRIAL/INSTITUTIONAL LEVEL FINISHED 7 I XII I XV I XII I XV 96% 97% ON GOING DISCUSSION 3% Initially, there are 233 regulations which need to be deregulated Based on the further assessment, 11 regulations has been revoked from deregulation process Total regulation subject to be deregulated: 222 regulations As of July 3 rd, 2017, deregulation of 215 regulations are finished (97%), comprising 50 regulations at Presidential level and 165 regulations at Ministrial/Institutional level Unfinished regulations: Proposed Policy on Development of Business and competitiveness of National Logistics Service Providers *as of July 5 th, 2017 Source: Coordinating Ministry for Economic Affairs 14

16 Other Progress on Economic Policy Packages Fair, Simplified & Projectable Wage System 14 Provinces have set 2016 Minimum Wage System in accordance to the Government Regulation (GR) No. 78/2015 (Kepulauan Riau, Kalimantan Barat, Nusa Tenggara Barat, Sumatera Barat, Jambi, Aceh, Kalimantan Selatan, Banten, Gorontalo, Nusa Tenggara Timur, Jawa Barat, Bali, Sumatera Utara, and Bangka Belitung) Development of Spesial Economic Zone (SEZ) Total value of facilities and incentives for SEZs amounted IDR 33.8 trillion (as of September 2016) 18 companies benefitted from the simplification of fiscal incentive process with average processing time of 13.4 days (previously 2 years) Export-Oriented Business Credit (KURBE) State-owned train manufacturer PT Industri Kereta Api (INKA) in Madiun, East Java, has begun its first passenger train exports by shipping 15 train wagon to Bangladesh. Deregulation on Logistics Sector North Sulawesi has sucessfully exported coconut product through SOEs joint program 30 Bonded Logistic Center has been launched to support various industries 15

17 Improving Investment Climate implement 3-hour investment licensing service to complement the One Stop Service (OSS) Requirement for utilizing 3-hour Investment Lisencing Service: 1. Minimum investment of IDR 100 billion (USD 8 million) and/or employing 1,000 local workers. 2. Application must be submitted directly by at least one candidate of the proposed company stakeholder No requirements for investment in infrastructure sector BKPM Arrive at OSS at BKPM directly from the airport Consult with Director of Investment Service Submit the required documents & data Wait at the lounge while documents are processed by BKPM, in-house notary, ministries, & other government institutions Obtain eight documents & letter of land availability within three hours to start the business 2 documents needed Investor identity as the prospective shareholders ID Card And/or Deed of Establishment (Indonesian company) or Article of Association (Foreign company) Certainty to start a business 9 documents obtained Investment license Certificate of incorporation NPWP/Tax Registration Number TDP/Company Registration Certainty to Import capital goods APIP/Import identification NIK/Customs registration Flowchart of business activities workflow Containing workflow from raw material production to the finished products Certainty to work RPTKA/Employment plan IMTA/Working permit Accurate land information Letter of land availability From Jan 11 th September 2017, 130 projects have utilized the 3 hours services Source: Investment Coordinating Board (BKPM) 16

18 Improving Investment Climate implement 3-hour investment licensing service for Energy and Mineral Resources Sector 9 Types of licensing issued by ESDM3J service Director arrives at central OSS, then submit required documents* Waiting in priority lounge, while the documents processed Applicant receive the requested licensing products Note *: ESDM3J service is given if the company has fulfilled the checklist of administrative & technical requirements as regulated on MEMR Ministrial Decree No.15 of 2016 From Jan September 2017, 40 projects have utilized the 3 hours services for EMR Sector No. Type of Licensing 1 Temporary Business License for Electricity 2 Temporary Business License for Oil/Fuel/LPG storage 3 Temporary Business License for Storage of Processed Products/CNG 4 Temporary Business License for LNG Storage 5 Temporary Business License for Oil Refinery 6 Temporary Business License for Processing Oil Residue Industry 7 Temporary Business License for Natural Gas Processing 8 Temporary Business License for General Trade of Oil/Fuel 9 Temporary Business License for General Trade of Processed Product Duration for reguler service (work days) / Source: Investment Coordinating Board (BKPM) 17

19 Improving Investment Climate implement Direct Construction Permit to attract investment in Industrial Estates Priority Investment Service Direct Construction (KLIK) Investors can directly start their project construction before obtaining construction permits. This service is supported by both Central and Regional Governments which become the first step to synergize between central and local licensing No Requirements No minimum investments or workers is required. Available for 32 selected industrial estates. Construction permits can be obtained in parallel with construction process. Obtain investment licence at OSS at national or regional level. Survey a land within selected industrial estates. Acquire the land for your industry. Start the construction of your project. No other permits are required. Apply for building construction permit & environmental permit, in parallel with construction process. Until August 2017, 91 projects have utilized the KLIK services Source: Investment Coordinating Board (BKPM) 18

20 Improving Investment Climate Direct Construction Permit is expanded to 32 Industrial Estates (IE) throughout Indonesia 1 North Sumatera (1 IE; 100 ha) Medan Industrial Estate/KIM (100 ha) 2 Banten (3 IE; 3,150 ha) 1. Modern Cikande Industrial Estate/MCIE (1,800 ha) 2. Wilmar Integrated Industrial Park/WIIP (800 ha) 3. Krakatau Industrial Estate Cilegon/KIEC (570 ha) 3 West Java (5 IE; ha) 1. Bekasi Fajar Industrial Estate/BFIE (300 ha) 2. Delta Silicon 8 (158 ha) 3. Karawang Internasional Industrial City/KIIC (293 ha) 4. Suryacipta City of Industry/SCI (300 ha) 5. GT Tech Karawang (100 ha) Source: Investment Coordinating Board (BKPM) 4 KLIK 1 st Stage (14 IE) KLIK 2 nd Stage (18 IE) Central Java (3 IE; 840 ha) 1. Kendal Industrial Park/KIP (700 ha) 2. Bukit Semarang Baru/BSB (40 ha) 3. Wijayakusuma Industrial Estate/KIW (100 ha) 5 East Java (1 IE; 1,761 ha) KI Java Integrated Industrial and Port Estate/JIIPE (1,761 ha) 6 South Sulawesi (1 IE; 3,000 ha) Bantaeng Industrial Park/BIP (3,000 ha) Riau Island (5 IE; 556 ha) 1. Batamindo Industrial Park (61.4 ha) 2. Bintang Industrial Park II (20 ha) 3. Kabil Integrated Industrial Estate (142.5 ha) 4. Bintan Inti Industrial Estate (229.6 ha) 5. West Point Maritim Industrial Park (102.5 ha) 5 Central Java (1 IE; ha) IE Demak (285.7 ha) Riau (1 IE; ha) IE Dumai (198.9 ha) 3 DKI Jakarta (2 IE; 129 ha) 1. Kawasan Berikat Nusantara/KBN (118.6 ha) 2. Jakarta Industrial Estate Pulagadung/JIEP (10.4 ha) 6 East Java (2 IE; 341 ha) 1. IE Maspion (151 ha) 2. IE Tuban (190 ha) 4 West Java (6 IE; 1,814.1 ha) 1. Artha Industrial Hill (315.1 ha) 2. Greenland International Industrial Center (GIIC)/Deltamas (400 ha) 3. Jababeka Tahap III (45 ha) 4. Kota Bukit Indah Ind. City (510 ha) 5. Indotaisei Kota Bukit Indah (300 ha) 6. Marunda Center (300 ha) 7 East Kalimantan (1 KI;133.8 ha) IE Kariangau (133.8 ha) 19

21 Improving Investment Climate Bonded Logistic Center to Improve Indonesia s Competitiveness Bonded Logistic Center (Pusat Logistik Berikat/PLB) is a facility provided by Ministry of Finance as part of the implementation of the 2 nd Economic Policy Package. PLB facility aims to improve efficiency and reduce the cost of transportation and logistics in Indonesia; support the growth of the domestic industry, including small and medium industries; increase investment; and to make Indonesia to become a logistics hub in Asia Pacific. To date, 30 Bonded Logistic Center has been launched to support various industries. Oil and gas, and mining industry Food & beverages industry Automotive industry Personal care/ home care industry Textile (cotton) industry. Small and medium industry Synthetic textile (chemical substances) industry. 20

22 Improving Investment Climate revising the Negative Investment List Introduction of New Foreign Ownership Regulation for Strategic Sectors Cold storage Sports Center, Restaurants, Bars Pharmaceutical Raw Materials Film Processing Lab, Crumb Rubber Manufacturing Before After Before After Before After Before After 33% 100% 49% 100% 51% 100% 85% 100% Key Reforms in Negative Foreign Investment List Toll Road Operator, Telecommunication Testing Company Distribution, Warehousing Private Museum, Catering, apparel Manufacturing, Exhibitions & Conventions Before After Before After Before After Revision of "Partnership" category to refer to partnership with Micro, Small and Medium Enterprises (MSMEs) 95% 100% 33% 67% 51% 67% Grandfather Law: If a particular sector is tightened in future, existing foreign investor does not need to comply with tighter stake Professional Training, Golf Course Management, Air Transport Support Services, Travel Bureau Consultancy for Construction 1 Telecommunication Provider with Integrated Services Before After Before After Before After Strengthen implementation of negative investment law through active roles from ministries, agencies and regional governments 49% 67% 55% 67% 65% 67% 1 For total project value of IDR10bn and above Source: Investment Coordinating Board (BKPM) 21

23 Continuous Improvement of Investment Climate another leap on Indonesia s Rank on Ease of Doing Business (EODB)* EODB 2018 Rank EODB 2017 Rank Change in Rank EODB 2018 Points EODB 2017 Points Change in Points Overall Starting a business Dealing with Construction Permit Getting Electricity Registering Property Getting Credit Protecting Minority Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency * Higher rank is better, EoDB 2018 was published in October Government efforts to boost business growth through deregulations and de-bureaucratization have been recognized by the improvement of EODB - Structural reforms will continue including in the budget and real sectors Source: World Bank 22

24 Improving Investment Realization (Q2-2017) Rising Direct Investments IDR tn FDI DDI TOTAL Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q IDR176.6tn Rp159.4IDR155.3tn T 434,463 Rp145.4 T 375,982 Q Q IDR111.7tn IDR99.7tn * % 13.7% 15.6% Q Q Q1-2016Q * person IDR64.9tn IDR55.6tn 12.0% 16.8% FDI Realization by Sectors Transportation, Warehouse, and Telecommunication US$455.2 mn 156.3% Trade & Reparation US$425 mn 151% Metal, Machinery & Electronic Industry US$ mn 5.3% Non Metallic Mineral Industry US$212 mn 97.9% Investment Realization Mining US$ mn 35.4% Wood Industry US$272.1 mn 1,887.6% Textile Industry US$59.3 mn 39.2% Rubber and Plastic Industry US$88.1 mn 36.7% Q Q Q Q Source: Investment Coordinating Board (BKPM), compared to Q period 23

25 Section 2 Economic Factor: Strong and Stable Growth Prospects Remain Intact

26 Conducive Environment Underpinning Strong Growth Fundamentals Largest Economy in South East Asia Manageable Inflation Rate 4th Most Populous country in the World; 64% in productive age Growing Middle Income Class Large and Stable Economy Consistent Budget Reform Reform-Oriented Administration Budget reform as a part of larger economic reform initiative Fuel subsidies significantly reduced and spending redirected to more productive allocation Tax base to be broadened from one reduce dependency on commodities Prudent debt management From commodity-based to manufacturing and service sectors via infrastructure development From consumption-led to investment-led growth via a stronger manufacturing sector and more investment initiatives Policies to maintain purchasing power to stimulate domestic economy in the midst of weakening macroeconomic conditions New Economic Structure High Infrastructure Investments Three main sources of financing for investment needs: State and regional budget, State Owned Enterprises and PPP Continuing from 2015 policy, infrastructure will be higher than fuel subsidy Infrastructure spending focused on basic infrastructure projects Fiscal and non-fiscal incentives to attract infrastructure investment and promote PPP 25

27 Indonesia s Strong GDP Strong GDP Growth 1 Favourable GDP Growth Compared to Peers 2 % 7.0 QoQ YoY % (0.17) (0.40) (1.77) (0.34) * 2018* -3.0 (2.07) (1.70) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Brazil India Indonesia Malaysia Philippines Singapore Thailand Turkey GDP Growth Based on Expenditures (%, YoY) 1 By expenditure Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 HH. consumption Non profit HH (0.5) 12.2 (8.1) (8.0) (0.6) consumption Government 6.1 (1.8) (2.9) (4.0) (0.1) 2.7 (-1.9) consumption Gross Fixed Cap Formation Exports (4.4) 1.1 (0.7) (0.3) (0.9) (6.4) (2.1) (3.3) (2.2) (5.6) 4.2 (1.7) Imports (2.6) (7.4) (6.6) (8.7) (6.4) (5.1) (3.2) (3.7) 2.8 (2.3) GDP Growth Prospect Institutions 2017 GDP growth (%YoY) 2017 R-Budget Plan 5.2 Bank Indonesia IMF 5.1 World Bank 5.2 ADB 5.1 Consensus Forecast (October 2017) Source: Central Bureau of Statistics of Indonesia (BPS) 2. Source: World Economic Outlook Database - April 2017; * indicates estimated figure 26

28 Strong and Stable GDP Performance Spatial GDP Growth (YoY) Spatial GDP Growth Contribution Sumatera GDP Growth Q2 2017: 4.1% Kalimantan GDP Growth Q2 2017:4.7% Sulawesi GDP Growth Q2 2017:6.7% Bali & Nusa Tenggara GDP Growth Q2 2017: 2.8% Maluku & Papua GDP Growth Q2 2017: 4.3% Sulawesi: 6,1% Kalimantan: 8.2% Bali & Nusa Tenggara: 3.1% Maluku & Papua: 2.3% Sumatera: 21.7% Java GDP Growth Q2 2017: 5.5% GDP Growth by Sector (%, YoY) Java: 58.7% By sectors Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Q3 Q4 Tot. Q1 Q2 Agriculture, forestry, and fishery Mining and Quarrying (-3.6) (-4.4) (-6.0) (-3.4) (-0.6) 2.2 Manufacturing Construction Wholesale and Retail Trade, Repair of Car and Motorcycle Transportation and Storage Information and communication Financial service Other Services * GDP Source: Central Bureau of Statistics of Indonesia (BPS) *Other services consist of 10 sectors (according to Standard National 2008) 27

29 Section 3 External Factor: Improved External Resilience

30 A Narrower, Structurally-Stronger Current Account Deficit Strong Balance of Payments US$bn US$bn Current Account Capital and Financial Account -15 Overall Balance Reserve Asset (RHS) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4* Q1*Q2** * 2017** Source: Bank Indonesia Improving Current Account Deficit US$bn : CA Deficit (US$24.4bn) Source: Bank Indonesia 2013: CA Deficit (US$29.1bn) 2014: CA Deficit (US$27.5bn) 2015: CA Deficit (US$17.5bn) 2016*: CA Deficit (US$16.8bn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4* Q1*Q2** * 2017** Goods Services Income Secondary Income Current Account (8.54) (4.96) (2.31) Trade Balance Surplus Continues OG Non-OG Total Source: BPS 2013: Deficit (US$4.10bn) 2014: Deficit (US$2.37bn) * Preliminary Figure ** Very Preliminary Figure 2015: Surplus US$7.59bn 2016: Surplus US$8.83bn 2017: Surplus US$10,87bn* Supported by Substantial FX Reserves to Mitigate External Challenges US$bn FX Reserves (LHS) Month of Import & Debt Service (RHS) Source: Bank Indonesia FX Reserves as of September 2017: US$129.4 bn (Equiv. to 8.6 months of imports + servicing of government debt) Month

31 1-Apr 6-Apr 11-Apr 16-Apr 21-Apr 26-Apr 1-May 6-May 11-May 16-May 21-May 26-May 31-May 5-Jun 10-Jun 15-Jun 20-Jun 25-Jun 30-Jun 5-Jul 10-Jul 15-Jul 20-Jul 25-Jul 30-Jul 4-Aug 9-Aug 14-Aug 19-Aug 24-Aug 29-Aug 3-Sep 8-Sep 13-Sep 18-Sep 23-Sep 28-Sep Exchange Rate In Line with Fundamentals Stable Movement of Rupiah IDR/US$ 13,550 *data as of September 29 th, ,500 13,450 13,400 13,350 13,300 13,250 13,200 13, IDR/USD Monthly Average Quarterly Average In September 2017, the Rupiah appreciated by an average of 0.27% to Rp13,307 per USD. The appreciation was supported by influx of foreign capital flowed into the domestic FX market, leading to a net supply. 13,100 Rupiah Exchange Rate Fared Relatively Well Compared to Peers YTD 2017* vs 2016 TRY PHP MYR IDR EUR 0.68 KRW INR 4.05 Point to Point Average 2.96 THB *data as of September 29 th, BRL 2.93 ZAR % INR JPY KRW Sept vs Agst 2017 PHP IDR THB BRL ZAR SGD EUR TRY CNY MYR *data as of September 29 th, Point to Point Average % Source: Bank Indonesia 30

32 Global Regional Bilateral Ample Lines of Defense Against External Shocks Ample Reserves FX Reserve Ample level of FX reserves to buffer against external shock FX Reserves as of September 2017: US$129.4 billion Swap Arrangement Japan US$22.76 billion swap line with Japan currently in place The size of the swap line was increased from US$12 bn in December 2013 South Korea Renewed a 3 year KRW/IDR swap arrangement with the size of up to 10.7 tn KRW/IDR115 tn in March 2017 Australia Established a 3 year A$/IDR swap arrangement with the size of up to A$10 bn or IDR100 tn in Dec Chiang Mai Initiative Multilateralization (CMIM) Agreement Entitled to a maximum swap amount of US$ bn under the ASEAN+3 (Japan, China, and Korea) FX reserves pool created under the agreement Came into effect in 2010 with a pool of US$120 bn Doubled to US$240 bn effective July 2014 IMF Global Financial Safety Net - GSFN Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL) Source: Bank Indonesia 31

33 Measures to Manage External Volatility Pre-emptive Measures Bond Stabilization Framework Implementing Crisis Management Protocol (CMP) Implementing Bond Stabilization Framework (BSF) Enhancing coordination between government institutions and continuous dialogue with market participants Specific policies in place to address crises enacted in 2017 budget law Swap facility arrangements based on international cooperation Crisis Management Protocol Indicators to determine crisis level of Government Securities Market condition (normal, aware, alert, crisis) Several market indicators that are monitored daily: - Yield of benchmark series; - Exchange rate; - Jakarta Composite Index; - Foreign ownership in government securities Policies to address the crisis at every level : Repurchase the government securities at secondary market Postpone or stop the issuance First Line of Defense State s Budget State Owned Enterprises s Budget Social Security Organizing Agency (BPJS) s Budget Second Line of Defense State s Budget State Owned Enterprises s Budget Social Security Organizing Agency (BPJS) s Budget Buyback fund at DG of Budget Financing and Risk Management Investment fund at Public Service Agency (BLU) (min. level Aware) Related SoE (min. level Aware) BPJS (min. level Aware) State General Treasury Account (Rekening KUN) (min. level Alert) Accumulated cash surplus (SAL) (min. Level Crisis) Related SoE (min. level Alert) BPJS (min. level Alert) Source: Ministry of Finance 32

34 Strengthened Private External Debt Risk Management Private External Debt is Stabilizing and Trending Down Debt Burden Indicator (External Debt / GDP) Remains Comparable to Peers US$bn Feb 2016* Public (Govt. & BI) Private Total (RHS) Apr 2016* Jun 2016* Aug 2016* Oct 2016* Dec 2016* Feb 2017* Apr 2017* Source: External Debt Statistics of Indonesia, October 2017 Source: Moody s Statistical Handbook, May 2017 * Provisional Figures ** Very Provisional Figures Total Ext. Debt: US$340,5bn Private Sector Ext. Debt: US$165,6bn June 2017* August 2017** US$bn External Debt / GDP (%) Turkey Brazil Indonesia Thailand Philippines India (%) Encouraging Corporates Compliance on Hedging Ratio & Liquidity Ratio Hedging Ratio* Liquidity Ratio* < 3 months > 3 6 months (87,2%) (89.4%) (93,6%) (12.8%) (10.5%) (6.4%) Comply Not Comply *Data as of Q2 2017, with total population corporates Source: Bank Indonesia Regulation Key Points Object of Regulation Hedging Ratio Phase 1 Jan 1,2015 Dec 31,2015 Phase 2 Jan 1,2016 Dec 31,2016 Governs all Foreign Currency Debt < 3 months 20%* 25%** > 3 6 months 20%* 25%** Liquidity Ratio (< 3 months) 50% 70% Phase 3 Jan 1, 2017 & beyond Credit Rating Not applicable Minimum rating of BB- Hedging transaction to meet hedge ratio not necessarily be done with a bank in Indonesia Sanction As of Q IV-2015 Applied Must be done with a bank in Indonesia 33

35 Manageable External Debt Profile short term non-bank corporate debt (non affiliation) represents only 9.1% of total private external debt Public Long Term 1 Private Bank External Debt Position US$174.9bn or 51.4% of Total Ext. Debt US$120.1bn or 72.5% of Private Ext. Debt US$19.1bn or 11.5% of Private Ext. Debt Affiliation US$11.4bn or 6.9% of Private Ext. Debt US$340.5bn US$165.6bn or 48.6% of total Ext. Debt US$45.5bn or 27.5% of Private Ext. Debt US$26.5bn or 16% of Private Ext. Debt External Debt Position as of August Based on remaining maturity Private Short-Term 1 Private Non-Bank US$15.1bn or 9.1% of Private Ext. Debt Source: External Debt Statistics of Indonesia, October 2017 Non Affiliation 34

36 Section 4 Fiscal Performance and Flexibility: More Fiscal Stimulus with Prudent Fiscal Policy

37 Integrated Reform to Provide Higher Quality of Economic Growth...synergy between authorities to drive economy navigating the challenges Productive and realistic budget Credible budget execution Fiscal Policy to maintain consumption and improve investment climate Economic policy packages Real Sector Synergy in reform to boost the more sustainable and inclusive growth Monetary & Financial Sector Inflation management Monetary policy to ensure macroeconomic and financial system stability Macro-prudential policies Source: Ministry of Finance 36

38 Long Term Strategies to Achieve Sustainable Growth stimuli to maintain purchasing power The Virtuous Cycle of Purchasing Power Stimuli Consumption is still the largest contributor to Indonesia s GDP Private consumption has been a key factor driving Indonesia s economic growth in recent years Ease of land certification and licensing for street vendors Increase non-taxable income limit Fuel price and electricity adjustment The government has designed stimulus program to maintain and enhance purchasing power for households The government has increased non-taxable income level and adjusted wage policy to ensure that the lowest income bracket has the greatest support Funds are targeted at not only to improve basic village infrastructure but also to create jobs through labor intensive projects as well as other job creation programs Rural transfer for productive spending Stabilized price for meat products Predictable labour wages Maintaining Purchasing u Power 2 months addition of rice subsidy program Boosting housing development Elimination of luxury goods tax for consumer goods 37

39 Long Term Strategies to Achieve Sustainable Growth stimuli to promote investments Licensing Incentives Tax Incentives Business and Infrastructure Incentives Other Incentives Permit & licensing simplfication Income tax relief for labor intensive industries Incentives for footwear and apparel industries Simplification of import licensing for drugs and raw food Accelerating infrastructure development Water management and regulation One map policy Relaxation of entry visa policies Tax incentives for REITS Dwelling time optimization Oil refinery development Aviation sector incentives Downstream industries Debt To equity ratio Expansion of coverage and interest subsidy for MSME Special economic zones Tax incentives on property Integrated logistics zones CPO fund Support for export-oriented industries Village-city Acceleration logistics of power improvement infrastructure Relaxation of negative foreign investment list 38

40 Building a Credible and Realistic Budget providing more certainty to all stakeholders Indicator Realization¹ Budget Sept Real. R-Budget 4 Economic growth (%, yoy) Inflation (%, yoy) Month Treasury Bill (SPN) (%) Budget Exchange Rate (Average, IDR/USD, Avg. YTD) 13,307 13,300 13,331 13,400 13,400 ICP (USD/barrel) Oil Production (thousand barrel/day) Gas Production (thousand barrel oil equivalent/day) Macroeconomic Assumption for 2018 Budget 1,180 1,150 1, ,150 1, budget will focus on efficiency and quality of priority expenditure, optimization and reforms on government revenue, and maintaining economic momentum as well as public confidence fiscal deficit is set lower than 2017 R-budget at 2.19% of GDP. However, government spending is targeted towards infrastructure development as well as poverty and unemployment reduction for an equitable development and improved connectivity Description (IDR Trillion) Audited R-Budget to % Realization Budget R-Budget 1H Realization Budget Realization Budget to Budget A. Revenues and Grants 1, , ,736.1 (14.2) % 1,894.7 I. Domestic Revenue 1, , ,733.0 (15.9) % 1, Tax Revenue 1, , ,472.7 (26.2) % 1, Non Tax Revenue % II. Grants % 1.2 B. Expenditure 1, , , % 2,220.7 I. Central Government Expenditure 1, , , % 1, Ministerial Spending % Non Ministerial Spending % II. Transfer to Region and Village Fund % Regional Transfer % Village Fund % 60.0 C. Primary Balance (125.6) (109.0) (178.0) (69.0) (68.2) 62.6% (87.3) D. Surplus (Deficit) (308.3) (330.2) (397.2) (67.0) (175.1) 53.0% (325.9) % of GDP (2.49) (2.41) (2.92) (0.51) (1.29) (2.19) E. Financing % Source: Ministry of Finance 1. Audited 3. Data as of Aug Q2 GDP Growth 4. Approved by Budget Committee of Parliament 39

41 A More Realistic 2018 Tax Revenue Target taxation policies are directed at expanding the tax base and increase compliance Tax Revenue (in IDR Trillion) Measures to Improve Taxation Automatic Exchange of Information (AEoI) Data and Information System Taxation Taxpayer compliance Human Resources and Regulation 2017: 1.472,7 Tax incentives 2018: 1.618, Tax Revenue Target 1.618, Outlook: 1.472,7 2014: 1.146,9 2015: 1.240,4 6,5 2016: 1.285,0 8,2 3,6 14,6 Oil and Gas Income Tax Tax 1.424,0 Non Oil and Gas Tax 38, ,9 Custom and Excise 194,1 Tax Collection Growth (yoy, %) Source: Ministry of Finance 40

42 Maintaining Productive and Effective Spending Policies Continue the efficiency of operational expense and increase the priority expenditures 2018 Budget Ministerial Spending T IDR 48.8 T from 2017 R-Budget Non Ministerial Spending T IDR 38.7 T from 2017 R-Budget Improved performance-based planning in line with development priorities % Interest Payment T Operational Expense Efficiency Monitoring and Evaluation Implementation Earlier Auction Process Energy Subsidy 94.5 T Non Energy Subsidy 61.7 T 41

43 Better Targeting of Subsidy Policy in more budget allocated to non energy subsidy and priority programs to improve basic services Budget for Education Program Budget for Health Program IDR tn Real 2015 Real 2016 Real 2017 Outlook 2018 Budget IDR tn Real 2015 Real 2016 Real 2017 Outlook 2018 Budget Certification Indonesia Smart Card (KIP) Bidikmisi Scholarship Immunization Health Insurance Subsidy (PBI) Stunting Prevention 101,100 teachers 10,200 lecturers School Operational Assistance (BOS) 19.5 million students School Rehabilitation thousands college students Operational Assistance for Colleges Basic & complete immunization for 92% of 94.4 million people 0-11 months old infants Community Health Centre (Puskesmas) Stunting prevention to 29.6% of children below 2 years old Family Plan Program (KB) 8.5 million students 41,128 rooms 107 Colleges/Universities 700 regencies 6.7 million people 42

44 Improved Budget Allocation Between Central & Local Government promoting better allocation of budget spending to local government 2018 Transfer to Regions and Village Funds (Budget) Transfer to Regions/Village Funds & Ministerial Spending Special Autonomy & D.I Yogyakarta - DIY (IDR21.1 tn) Improving efficiency and effectiveness of Special Autonomy & DIY Fund. Village Fund (IDR60.0 tn) Gradually increasing Village Fund allocation Average allocation of IDR800.5 million per village IDRtn 2013 Audited 2014 Audited 2015 Audited 2016 Audited 2017 Budget 2017 R-Budget 2018 Budget Transfer to Region Village Fund Incentive Fund (IDR8.5 tn) Incentive Fund allocation has been increased (317 regions were awarded an incentive ranging between IDR 7.5bn and IDR 65. 3bn) 0.98% 7.85% 2.65% Total Intergovernmen tal Transfer Ministerial Spending % 65.85% Special Transfer Fund (IDR185.9 tn) Implementation of policy to allocate spending to regions Special Transfer Fund allocation is based on each regions proposal and national priorities Source: Ministry of Finance General Transfer Fund (IDR490.7 tn) Minimum of 25% (IDR122.7 tn) earmarked for public service facility development acceleration. It provides revenue sharing fund to promote equal opportunity for natural resource producers & high tax earners Minimum 25% of general transfer fund has to be used for public service infrastructure 43

45 Policy on Infrastructure Spending and Transfer to Regions developing the nation through targeted spending Infrastructure Budget Allocation IDR tn Real 2014 Real 2015 Real 2016 Real 2017 Outlook 2018 Budget In 2017, minimum 25% of general transfer fund has to be used for public service infrastructure 2017 Infrastructure Budget Allocation (IDR billion) and 2016 realization Java Kalimantan 2016 : 3, : 3, : 461, : 1, : 2, : 3,641.6 Maluku & Papua Sulawesi 2016 : 3, : : 1, : 1, : 2, : 4, Construction Target Road Development Target: 815 km Railways Target: 550 km 2016 : : : : 1,042.6 Airport Target: 13 Seaport Target: 55 locations Sumatera 2016 : 3, : 3,545.7 Bali & Nusa Tenggara 2016 : : 1,207.3 Bridge Target: 9,399 m Bus station Target: 3 locations 2016 : 1, : 1, : : Source: Ministry of Finance 44

46 2016 Budget Realization Did Not Impede Priority Projects Although deficit was capped at manageable level, infrastructure development continued to accelerate Infrastructure Realization 1 Infrastructure Development Achievement in 2016 IDR tn : 88.2% of budget 2016: 84.9% of budget Road Development (km) Target: 3,149.6 Realization: 2, Airport Target: 15 (up to 2019) Realization: 3 0 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing Food Security Realization Bridge (km) Target: 12.9 Realization: 10.6 IDR tn : 87.5% of budget 2016: 84.3% of budget Railway 2 (km) Target: Achievement: Dam Target: 37 Achievement: 37 0 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing Irrigation (km) Target: 4,889 Achievement: 1,025 Source: Ministry of Finance 1. Not including LRT South Sumatra and Jabodetabek 2. Land issues are in progress 45

47 Education and Health Spending Well Delivered in 2016 Investment to improve social welfare in the longer term Education Expenditure Health Expenditure IDR tn : 95.5% of budget : 88.9% of budget IDR tn : 88.1% of budget : 88.6% of budget Budget Realization Budget Realization 0 Budget Realization Budget Realization Ministerial Spending Non Ministerial Spending Regional Transfer Financing Ministerial Spending Non Ministerial Spending Regional Transfer Financing University scholarships for underprivileged students (Bidikmisi) Realization: 324 thousand college students Target: 332 thousand college students School Operational Assistance (BOS) Realization: 8.0 million students Target: 8.2 million students Vaccine availability in Community Health Centre (Puskesmas) Realization: 81.5% Target 80.0% Immunization for infants between 0 11 months Realization: 4 million infants Target 4 million infants School Rehabilitation Realization: 28,400 rooms Target: 30,300 rooms Indonesia Smart Card (KIP) Realization: 20.7 million students Target: 19.5 million students Health Insurance Subsidy (PBI) Realization: 91.1 million people Target 92.4 million people Accredited Regional Hospital Realization: 201 hospitals Target 190 hospitals Malaria Eradication Realization: 247 cities Target 245 cities Source: Ministry of Finance 46

48 Regional Revenue and Expenditure Profile effective expenditure policy as a tool to promote equality across Indonesia KALIMANTAN Revenue 86.0 a. Tax 32.0 b. Custom & Excise 1.1 c. Non Tax Revenue 52.9 Expenditure 93.9 a. Transfer to Region 73.7 b. Ministerial Spending 20.3 Nett (7.9) SULAWESI Revenue 19.7 a. Tax 16.6 b. Custom & Excise 0.6 c. Non Tax Revenue 2.5 Expenditure a. Transfer to Region 73.3 b. Ministerial Spending 31.2 Nett (84.8) PAPUA & MALUKU Revenue 18.4 a. Tax 10.7 b. Custom & Excise 1.7 c. Non Tax Revenue 6.0 Expenditure 89.6 a. Transfer to Region 71.7 b. Ministerial Spending 17.9 Nett (71.3) SUMATERA Revenue a. Tax 66.9 b. Custom & Excise 6.8 c. Non Tax Revenue 70.4 Expenditure a. Transfer to Region b. Ministerial Spending 56.2 Nett (88.2) JAVA Revenue a. Tax b. Custom & Excise c. Non Tax Revenue 96.6 Expenditure a. Transfer to Region b. Ministerial Spending 101 Nett BALI & NUSRA Revenue 15.5 a. Tax 11.7 b. Custom & Excise 1.5 c. Non Tax Revenue 2.3 Expenditure 56.4 a. Transfer to Region 39.5 b. Ministerial Spending 17.0 Nett (40.9) Notes: 1. Average data Revenue amount collected from certain region for central government budget 3. Expenditure amount spent for certain region from central government budget 4. Figure in IDR trillion Source: Ministry of Finance 47

49 % of GDP % of GDP Indonesia s Tax Amnesty Program A Success Story With more than 965,000 taxpayers participating in the program Tax Amnesty Result (as of the end of March 31 st, 2017) Preliminary Evidence Payment 1% Tax Arrears Payment 14% Redemption Money 85% Offshore Declaration 21% 1,036 Repatriation 3% ,698 Onshore Declaration 76% Individual SMEs 18% Companies 12% SMEs 2% , Individuals 68% Revenue IDR 134.8tn (~1.1% GDP) Asset Declared IDR 4,881tn (~39.4% of GDP) Composition of Participants Based on Asset Declared Redemption Money Assets Declared Germany (2004) Belgium (2004) Italy (2009) Chile (2015) Indonesia (2016) India (1997) South Africa (2003) Spain (2012) Australia (2014) India (1997) Spain (2012) Chile (2015) Indonesia (2016) Italy (2009) South Africa (2003) Australia (2014) Source: Ministry of Finance 48

50 Comprehensive Tax Reform to Improve and Sustain Revenue Collection Focused on expanding taxpayer database, improving business processes, revising regulations and strengthening support system Expected Tax Revenue / GDP Increase (%) Ongoing Comprehensive Tax Reform on 4 Pillars Regulation IT Support Budget General Provision and Tax Procedures VAT Law Income Tax Law Stamp Duty Law Improvement of IT and communication system Increased accessibility of public data for individual data management Enhancement of data management Compliance Rate in Submitting Annual Tax Report % 60.4% 62.3% 64% 59% Human Resources Business Process % 54% 49% Registered Taxpayers Registered Taxpayers Tax Report Required Submitted Tax Report Compliance Rate = Submitted Tax Report/Registered Taxpayers-Tax Report Required Improvement of the human resources and organizational capacity and capabilities Establishment of tax reform task force team Discipline in terms of Plan- Do-Check-Action to monitor tax collection Stronger law enforcement Authorization to gather 3 rd party data (banking) Implementation of Automatic Exchange of Information Simplification of tax registration Source: Ministry of Finance 49

51 To optimize the use of external and domestic loans Financing Policy 2017: General Objective & Policy To meet financing needs at optimum cost and tolerable risk To manage debt-to- GDP ratio To support market development General Policy To optimize currency mix of issuance To enhance public accountability as part of transparent Government debt management To conduct active debt portfolio Source: Ministry of Finance 50

52 Budget Financing Breakdown in 2017 Redemption IDR350.9tn (eq. USD 26.3bn) Breakdown of budget financing IDR tn USD bn Government debt (net) Government securities (net) Debt (Gross) IDR735.6tn Domestic loans (net) Non-Debt Financing IDR54.5tn (eq. USD 4.1bn) (eq. USD 55.1bn) Budget Financing IDR330.2tn (eq. USD 24.7bn) Foreign loans (net) Source: Ministry of Finance USD/IDR: 13,351 as of August 31, 2017 Note: Subject to change in market conditions and other factors 51

53 Government Securities: Indicative Financing Plan for 2017* prudent and sustainable fiscal management Instruments Government Securities (Net) Indicative Target (IDR trn) Budget Indicative Target (USD bn) * Composition Indicative Target (IDR trn) R-Budget Indicative Target (USD bn) * Domestic Bonds Weekly Auction: Conventional securities 24 x Islamic securities 24 x Non-Auction: Retail bonds Private Placement Based on request Domestic 80% Auction 93% Non-Auction 7% International Bond 20% * USD/IDR: 13,351 as of August 31, 2017 Front Loading Issuance For Budget Financing Government Securities issuance in semester I: Target: 57.4% from gross issuance target Realization: 57.7% from gross issuance target Rupiah Government Securities issuance in semester I: Target: 42.7% from gross issuance target Realization: 43.1% from gross issuance target Government Issuance Targets Sukuk 29% Debt Securities 71% International Bonds Issuance of international bonds as a complement to avoid crowding out the domestic market; Consists of USD, YEN or EURO global bonds; International bond issuance can be maximized up to 25% from gross target, depends on financing need Average Tenor Maturity (ATM) for Government Securities: 6-8 years *: Based on Budget 2017 Source: Ministry of Finance 52

54 I N D I A B R A Z I L J A P A N UK USA S A F R I C A M A L A Y S I A A U S T R A L I A I T A L Y I N D O N E S I A T U R K E Y T H A I L A N D (7.1) (6.1) (5.8) (5.3) (4.8) (3.7) (3.3) (2.9) (2.8) (0.4) (0.6) (2.2) (1.6) (0.1) Sound Government Debt Portfolio Management Portfolio management characterized by stable debt/gdp ratio and well-diversified debt Stable Debt to GDP Ratio Over the Years* Deficit Productivity**** US$ bn % 24.9% 24.7% Government Debt / GDP (%) 27.4% 28.3% 28.1% Sep-17 Securities (LHS) Loans (LHS) Govt Debt / GDP (%) (RHS) 0.0 GDP Growh Fiscal Deficit (% GDP) Source: Ministry of Finance Source: MOF, World Economic Outlook Weighted Average Debt Maturity of ~9.0 Years (As of Sept. 2017) Well Diversified Across Different Currencies Years Sep-17 Source: Ministry of Finance % of Yearly Issuance 3% 3% 2% 2% 1% 1% 3% 3% 3% 3% 4% 4% 14% 12% 9% 8% 7% 6% 24% 29% 56% 53% 57% 56% 58% 59% Source: Ministry of Finance 29% 31% 30% 29% Sep-17 IDR USD JPY EUR Others*** *2017 year end position of debt/gdp ratio is projected based on GDP assumptions in APBN (Budget 2017), **Using GDP assumption in 2016 R-Budget, ***SDR, AUD, and other, ****GDP growth and fiscal deficit numbers are average of (5 years) 53

55 Well Balanced Maturity Profile With Strong Resilience Against External Shocks Declining Interest Rate Risks Declining Exchange Rate Risks % % Sep-17 Variable Rate Ratio¹ Refixing Rate² Sep-17 FX Debt to GDP Ratio* FX Debt to Total Debt Ratio Debt Maturity Profile Upcoming Maturities (Next 5 Years) IDR tn IDR-Denominated Other Currencies % In < 1 year In < 3 year In < 5 year Sep-17 1 Variable Rate Ratio is defined as ratio between debt instruments with variable rate divided by total debt instruments (variable + fixed rates) 2 Refixing Rate ratio is defined as ratio between debt instruments with variable rate + debt instruments with fixed rate maturing in 1 year divided by total debt instruments (variable + fixed rates) *Using GDP assumption in 2017 Budget. Source: Ministry of Finance 54

56 (%) (%) Profile of Total Central Government Debt Government Debt Outstanding Foreign Ownership of Government Securities at Longer Tenors (%) USD bn Loan (LHS) Government Securities (LHS) Total (RHS) >5 Foreign Ownership to Total Holders of Government IDR Bonds Composition September Jan-16 Jun-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Source: Ministry of Finance Foreign Holder Domestic Non Banks Domestic Banks 55

57 Ownership of IDR Tradable Central Government Securities Description Dec-14 Dec-15 Dec-16 Jan-17 Sept-17 (IDR tn) Banks* % % % % % Govt Institutions (Bank Indonesia**) % % % % % Bank Indonesia (gross) % % % GS used for Monetary Operation % % % Non-Banks % % % % % Mutual Funds % % % % % Insurance Company % % % % % Foreign Holders % % % % % Foreign Govt's&Central Banks % % % % % Pension Fund % % % % % Individual % % % % % Others % % % % % Total 1, % 1, % 1, % 1, % 2, % 1) Non Resident consists of Private Bank, Fund/Asset Manager, Securities Company, Insurance Company and Pension Fund. 2) Others such as Securities Company, Corporation, and Foundation. *) Including the Government Securities used in monetary operation with Bank Indonesia. **) net, excluding Government Securities used in monetary operation with Banks. Source: Ministry of Finance 56

58 Government Securities Realization Budget 2017 R-Budget 2017* Budget Realization (a.o. Sep.29, 2017) (IDR mn) % Realization to Budget 2017 Government Securities Net 399,992, ,959, ,965, % Government Debt Securities (GDS) 425,244,478 IDR Denominated GDS 323,223,000 -Coupon GDS 168,880,000 -Conventional T-Bills 153,950,000 -Private Placement 393,000 -Retail Bonds - International Bonds 102,021,478 -USD GMTN 73,825,500 -Euro GMTN 15,352,390 -Samurai Bonds 12,117,580 -Domestic Foreign Denominated Bonds 726,008 Government Islamic Debt Securities 166,044,267 Domestic Government Islamic Debt Securities 126,075,267 - IFR/PBS/T-Bills Sukuk (Islamic Fixed Rated Bond/Project Based Sukuk) 110,037,957 - Retail Sukuk 14,037,310 - Indonesia Hajj Fund Sukuk 2,000,000 Global Sukuk 39,969,000 *Using 2.67 deficit scenario Source: Ministry of Finance 57

59 Positive Response of Government Securities Issuance in 2017 Pricing Date December 1, 2016 March 22, 2017 May 31, 2017 July 11, 2017 Instrument Global Conventional Bonds (Prefunding) Global Sukuk Samurai Bonds Global Conventional Bonds Euro-Denominated Bonds Tenure 5 yr 10 yr 30 yr 5 yr 10yr 3 yr 5 yr 7 yr 10 yr 30 yr 7 yr Nominal Increasing Incoming Bids in 2016 s Government Securities Issuance IDR bn US$ 0.75 bn US$ 1.25 bn US$ 1.5 bn US$1 bn US$2 bn JPY40 bn JP50 bn JPY10 bn US$1 bn Coupon Rate 3.70% 4.35% 5.25% 3.40% 4.15% 0.65% 0.89% 1.04% 3.85% 4.75% 2.15% US$1 bn EUR1 bn Yield 3.75% 4.40% 5.30% 3.40% 4.15% 0.65% 0.89% 1.04% 3.90% 4.80% 2.178% Incoming Bid US$12 bn US$10.8 bn JPY100 bn US$7.3 bn EUR4.3 bn The average incoming bids in 2017 is IDR25.9 tn/auction, higher than 2016 (IDR18.81 tn/auction) The average awarded bids in 2017 is IDR11.2 tn/ auction, higher than 2016 (IDR9.44 tn/auction) Incoming Bid Awarded Bid Bid to Cover Ratio(RHS) Source: Ministry of Finance 58

60 Section 5 Monetary and Financial Factor: Credible Monetary Policy Track Record and Favourable Financial Sector

61 Bank Indonesia Policy Mix: Oktober 2017 The BI Board of Governors agreed on 18 th and 19 th October 2017 to hold the BI 7-days Reverse Repo Rate at 4.25%, while maintaining the Deposit Facility and Lending Facility rates at 3.50% and 5.00% respectively, effective 20 th October 2017 Holds the BI 7-day Repo Rate at 4.25% Remains vigilant of the global risks, relating to tighter monetary policy and fiscal reform plans in the US, geopolitical pressures in Europe and Korean peninsula, as well as domestic risks, including the ongoing consolidation in the corporate and banking sectors Expects economic growth in 2017 to potentially overshoot the previous expectation while remain within the % projection Continues to stabilise the rupiah in line with the currency s fundamental value, while maintaining market mechanisms. Continues to strengthen policy coordination with the Central and Regional Government to control inflation within the target corridor Predicts financial intermediation to improve in line with the lower reference rate and macroprudential policy easing, combined with the progress made in terms of banking and corporate sector consolidation. Economic financing through the capital market is also expected to increase in line with financial market deepening efforts. 60

62 Bank Indonesia Policy Mix: Jan 2016 Cut BI Rate 25 bps to 7.25%, DF & LF Rate at 5.25% & 7.75% BI lower its monetary operation rates even further, ranging from 25bps to 45bps (O/N to 1Y) 18 Mar 2016 Cut BI Rate 25 bps to 6.75%, DF & LF Rate at 4.75% & 7.25% 19 May 2016 Held BI Rate at 6.75%, and maintained DF & LF Rate at 4.75% & 7.25% respectively 21 Jul 2016 Held BI Rate at 6.5%, & maintained BI 7-day RR Rate, DF & LF Rate at 5.25%, 4.5% & 7.00% respectively. BI continued to conduct financial market deepening by introducing new investment & hedging products in the financial market, strengthened monetary management strategies, & encouraged the real sector to make optimal use of repatriation funds to support the implementation of the 2016 Tax Amnesty Law 22 Sep 2016 Cut BI 7-day RR Rate to 5.0%, DF and LF Rate to 4.25% and 5.75%. 17 Nov 15 Dec 2016 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 % Aug 2017 Cut BI 7-day RR Rate to 4.50%, DF Rate and LF Rate to 3.75% and 5.25 % Oct 2017 Held the BI 7- days RR Rate at 4.25%, DF Rate at 3.50% and LF Rate 5.00% 18 Feb 2016 Cut BI Rate 25 bps to 7%, DF & LF Rate at 5% & 7.5% BI lower the rupiah denominated primary reserve requirement by 1%, from 7.5% to 6.5%, effective from Mar. 16th April 2016 Held BI Rate at 6.75%, and maintained DF & LF Rate at 4.75% & 7.25% respectively. Reformulated policy rate from BI Rate into the 7 day (Reverse) Repo Rate to improve the effectiveness of monetary policy transmission. The change was effective on Aug. 19th Jun 2016 Cut BI Rate 25 bps to 6.5%, DF & LF Rate at 4.5% & 7.0% respectively Relaxed the loan-to-value ratio (LTV) and financing-to-value ratio (FTV) on housing loans/financing Relaxed partially prepaid loans/financing Raised the floor on the Reserve Requirement - Loan to Funding Ratio (RR-LFR) from 78% to 80%, with the ceiling maintained at 92%. The change was effective on Aug Aug 2016 Held BI 7- day RR Rate and DF Rate at 5.25% and 4.5% Cut LF Rate to 6.00%. 20 Oct 2016 Cut BI 7-day RR Rate to 4.75%, DF and LF Rate to 4.00% and 5.50% 19 Jan 20 July 2017 Held BI 7-day RR Rate at 4.75%, DF Rate at 4.00% and LF Rate at 5.5 % 22 Sept 2017 Cut BI 7-day RR Rate to 4.25%, DF Rate and LF Rate to 3.50% and 5.00% 61

63 Bank Indonesia Policy Mix: Maintaining Stability, Supporting Growth Accommodative monetary and macroprudential policies to support growth Monetary Transmission 1. Monetary Policy Policy Rate Reserve Requirement BI Rate cut of 25bps (Feb) Lowering RR by 50bps to 7.5% (Nov) Policy Rate cuts of 150bps Moving from BI Rate (12 month) to BI 7- day Reverse Repo Rate (Aug) Further lowering RR by 100bps to 6.5% (Feb) BI 7-day RR Rate cut of 25bps to 4.50% (Aug) Further BI 7-day RR Rate cut of 25 bps to 4.25% (Sept) Implementation of RR Averaging (Aug): RR fixed 5%; RR Averaging 1.5% Policy Rate 200 bps (Jan 16 Oct 17) Lending Rate (Jan 16 Aug 17) 115 bps (11.7%) Lending (Aug 16 Aug 17 (LBU) Total Rp342 T (8.3% yoy) RR 150 bps (Dec 15 Oct 17) Deposit Rate (Jan 16 Aug 17) 147 bps (6.5%) Deposit (Aug 16 Aug 17 (LBU) Total Rp442.5 T (9.6% yoy) 2. Exchange Rate Policy 3. Macroprudential Policy Market-based exchange rate stability consistent with fundamental Dual intervention in the FX market and purchases of government bonds from secondary market in time of distress (capital reversal) or large mis-alignment Relaxation of LTV for property and automotive loans (June) Further relaxation of LTV for property loans (Sept) Strengthening systemic surveillance & Crisis Management Protocol (April) Initiative to issue macroprudential regulation on Financing to Funding Ratio (FFR) Impacts of LTV Relaxation Growth, % (yoy) Loan Ags'16 Aug-2017 Construction Real Estate Housing Total Payment System Policy Obligation to use IDR in domestic transaction (March) Non-cash movement (GNNT) E-money for social transfer (Nov) Financial Technology (FinTech) Office (Nov) New Rupiah issuance (Dec) National Payment Gateway (June) Modernized cash management underway 62

64 Stable Monetary Environment Despite Challenges Inflation Continues Under Control Strengthened Monetary Policy Framework (%) CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) (%) 19 August 2016 LF Rate: 7.00 BI Rate: 6.50 The New Monetary Operation Framework LF Rate: BI 7Day RR Rate: 4.25 DF Rate: Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 LF Rate BI Rate BI-7Day RR Rate Rupiah Exchange Rate Remains Comparable to Peers Credit Growth Supported by Macroprudential Policy TRY PHP MYR IDR EUR KRW INR THB BRL ZAR YTD 2017* vs Point to Point Average *data as of September 29 th, % (YoY) Total Growth Working Capital Loans Investment Loans Consumption Loans Source: Bank Indonesia 63

65 6 Measures to Control Inflation in 2017 On January 25 th, 2017, the Government and Bank Indonesia agreed on six strategic measures to control inflation in 2017 within the target corridor of 4±1% (as well as in 2018 at 3.5±1%), while also setting the inflation targets for at 3.5±1%, 3±1% and 3±1% respectively. 1 Maintaining volatile food (VF) 2 Dampening the 3 inflation at 4-5% by: second-round effect of Administered Price Strengthening infrastructure for food logistics in local areas, particularly warehousing for storage Encouraging diverse food consumption in the community, especially of fresh chillies and alliums, by fostering product innovation in the processed foods industry Developing a commodity flow data system, specifically for food commodity Strengthening interregional cooperation Utilising fiscal instruments and incentives to extend the local government s role in price stability Accelerating connectivity infrastructure development Improving planting patterns adjustments Example: Controlling transportation fares Introducing Administered Price Sequencing Establishing the National Inflation Control Team Through Presidential Decree to strengthen the National Inflation Task Force (TPI) and Regional Inflation Task Forces (TPID) Strengthening central and local government coordination Through Eighth National TPID Coordination Meeting in July 2017 Including the planned conversion of several direct subsidies to cash transfers (fertilizer, rice for the poor and 3kg LPG) Strengthening the Bank Indonesia policy mix to maintain macroeconomic stability Those measures are needed to address several onerous domestic and external challenges that demand vigilance and early mitigations. The external challenges mainly stem from rising international commodity prices, while the domestic challenges stem from ongoing energy reform through adjustments of electricity tariffs for 900VA subscribers as well as fuel prices as the global oil prices continues to rise. The current aforementioned reform is warranted to ensure equitable development and to create more healthy fiscal space. 3kg Source: Bank Indonesia 64

66 Improving the Effectiveness of Monetary Policy Transmission Bank Indonesia has instituted a Reformulation of Monetary Policy Operations Framework which consists of 3 pillars; (1) implementation of BI 7day Reverse Repo Rate; (2) implementation of reserve requirement averaging; and (3) continue to implement money market deepening program. Reformulation of Monetary Policy Operational Framework Implementation of BI 7 Day Reverse Repo Rate Implementation of Reserve Requirement (RR) Averaging Implementation of Money Market Deepening Program Enhancement of monetary policy signal Enhancement of banking liquidity management Enhancement of instruments and transactions Source: Bank Indonesia 65

67 Enhancement of Monetary Operations Framework...positive results thus far Domestic Money Market Yield Curve (2 nd week of October 2017) Monetary operation term structure is being referred by money market rates Domestic money market yield curve tend to converge O/N 1W 2W 3W 1M 3M 6M 12M JIBOR IBMM Repo FX Swap MO IBMM: Interbank Money Market MO: Monetary Operation PREVIOUS JIBOR Can be traded among contributor banks for 10 minutes. Up to the amount of Rp10 billion. Up to 1-month tenor. Source: Bank Indonesia CURRENT JIBOR (as per June 1 st, 2016) Can be traded among contributor banks for 20 minutes. Up to a total of Rp20 billion. Up to 3-month tenor. 66

68 Introducing Reserve Requirement (RR) Averaging Previously, RR ratio is set at 6.5% (fixed) of the TPF (Third Party Fund) and to be maintain on daily basis. From 1 July 2017, the fulfilment method of RR has been adjusted to daily RR of 5% of TPF and average RR of 1.5% of TPF within a fixed period The Purpose of RR Averaging $ To provide flexibility in liquidity management in order to increase bank efficiency To function as an interest rate buffer in order to reduce interest rate volatility in the money market To provide space for liquidity placement in order to boost financial market deepening Source: Bank Indonesia 67

69 IDR tn IDR mn IDR tn IDR tn Financial Intermediation Improves in 2017 The growth of banking loans has improved from the previous year and is expected to further expand by 8±1% this year. In the domestic capital markets, capital raising by corporations (particularly right issues and corporate bond issuance) remains strong. The banking intermediation demonstrated an improving trend in in Q The growth was 8.26% (yoy) as of Aug-17 The growth of financing distributed by multifinance companies was also in an increasing trend and was recorded at 9.13% (yoy) in Aug-17 5,000 4,000 3,000 Bank Loans YoY Growth (rhs) 8.20% 8.26% 14% 12% 10% 8% Financing YoY Growth (rhs) 35% 25% 2,000 6% % 9.13% 15% 1,000 4% 2% 50 5% Feb-17 Apr-17 Jun-17 Aug-17 0% Jan-17 Feb-17 Mar-17 Apr-17 May-17Jun-17 Jul-17 Aug-17-5% Capital raising through rights issues and corporate bond issuance in Jan-Sep 2017 increased from the same period last year Gross premium revenue in the domestic insurance industry is also continuously growing 140 IPO Equity 120 Rights Issue 116 Corporate Bonds & Sukuk Jan-Sep 2017 Source: Financial Service Authority (OJK) Jan-Agust

70 Financial Institutions Remain Robust and Less Vulnerable Domestic financial institutions exhibit generally robust condition. Capital adequacy is maintained well above the minimum requirements. Profitability and leverage are maintained at a sufficient level. Further, gearing (debt-to-equity) ratio of multifinance companies provides ample room for future growth. Banking sector s capital adequacy ratio (CAR) was maintained at a high level. As of Aug-17 CAR & Tier 1 Capital was 23.38% & 21.54% respectively Risk-based capital (RBC) of the insurance industry also remains high, well above the minimum threshold (120%) % CAR Tier-1 Capital % RBC - Life Insurance RBC - General Insurance (rhs) 650% 600% 550% 500% 450% 282% 447% 300% 270% 240% 210% 180% Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug % 150% Profitability of the banking sector is relatively stable Gearing ratio of multifinance companies was at 2.98 times (well below the maximum requirement of 10 times), providing ample room for future growth % Net Interest Margin Return on Assets Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Source: Financial Service Authority (OJK) 69

71 Adequate Liquidity, Manageable Credit Risks Banks are equipped with adequate liquid assets to anticipate depositors withdrawal. Insurance industry also demonstrates an enhanced level of investment adequacy ratio. The non-performing loan/financing (NPL/NPF) ratio is maintained below the threshold. The ratio of liquid assets to deposits in the banking sector was well maintained at a high level. Investment adequacy ratio in the insurance industry is maintained above 100% % % 26 % 140 Life Insurance General Insurance Liquid Assets to Non-Core Deposits (lhs) Liquid Assets to Deposit (rhs) Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 As of Aug-17, the gross & net NPL ratios of the banking sector were 3.05% & 1.29% respectively, maintained below the threshold NPF ratio of the multifinance industry was 3.31% as of Aug-17, maintained well below the 5% threshold % NPL Net NPL Gross Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug % 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3.45% 3.31% Jan-17 Feb-17Mar-17 Apr-17May-17Jun-17 Jul-17 Aug-17 Source: Financial Service Authority (OJK) 70

72 Manageable Market Risk Amidst Fluctuations Being exposed to market fluctuations, financial institutions demonstrated resiliency in dealing with such risks. Net open position of the banking sector remains low, while the investment value of domestic institutional investors (mutual funds, insurers, and pension funds) continues to increase. Net open position in the banking sector was kept far below the maximum limit (20%) The movement of mutual funds net asset value (NAV) is in line with that of market index, but with much lower volatility % 1.63 IDR tn NAV of Mutual Funds (lhs) IDX Stock Composite Index (rhs) 6,000 5,800 5,600 5,400 5,200 5,000 4,800 4, Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 The investment value of insurers & pension funds remained in an increasing trend Multifinance companies exposures to foreign debt have generally been mitigated through hedging measures IDR tn IDR tn Investment of Insurers 1, Investment of Pension Funds (rhs) Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 IDR tn Domestic Debt Foreign Debt Source: Financial Service Authority (OJK) 71

73 Capital Market Demonstrates Strengthening Trend In the middle of unfavorable global environment, the domestic capital markets continues its strengthening trend. The volatility of the markets is relatively low. The IDX Stock Composite Index has strengthen by 11.95% (as of October 20 th, 2017, ytd) Both the stock & bond markets continued a strengthening trend, with a low level of volatility WORLD THAI KOREA INDO HKN SIN PHIL CHIN MAL JPN EURO AS RUS BRAZ TURK % Comp Bond Index Comp Stock Index (rhs) 6,200 5,700 5,200 4,700 4,200 The markets are relatively stable despite recent nonresident outflows In line with the stabilizing IDR and improving domestic prospects, the government bond yields continued to decline IDR tn 150 Gov't Debt Securities Equity Yield (%) 9 5-yr Yield 10-yr Yield 20-yr Yield Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 5 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Source: Bloomberg, IBPA, Indonesia Stock Exchange, Ministry of Finance 72

74 Maintaining Financial System Stability maintaining resilience in confronting possible shocks and enhancing financial system stability Strengthening financial sector supervision Assessment on the soundness of financial institutions Liquidity coverage ratio for banks Regulations on risk management for financial institutions Minimum capital requirement for banks Enhancement of GCG for financial institutions and publicly-listed companies Financial conglomerates account for 66.96% of the total assets of financial sector Others 33.04% Financial Conglomerates 66.96% Strengthening & structuring financial sector based on international standards Risk-based supervision for all financial sectors Regulations on domestic systemically-important banks and capital surcharge Enhancement of crisis management protocol and interagency coordination Improving the integrated regulation & supervision framework Such improvement has become even more important due to the dominance of financial conglomerates in the domestic financial sector. OJK has issued regulations on GCG, risk management, and minimum capital requirements for financial conglomerates. These will be followed by regulations on liquidity management, capital management, and intragroup transaction exposures. Source: Financial Service Authority (OJK), March

75 A Comprehensive Financial Deepening Program strategy to tackle challenges in deepening Indonesia s financial markets Financial Market Deepening Program First Priority: Continuous Basis Monitoring, match making, and solution: Repo Hedging Market Development Money Market Encourage well-functioning money market (deep and efficient, risk mitigation, and market integrity), through: Bank Indonesia Regulation (PBI) on Negotiable Certificate of Deposit (NCD) Enriching money market instruments, encourage banks to raise long term funding, and acts as an alternative investment for investors Bank Indonesia Regulation (PBI) on Commercial Paper Alternative sources of financing for non-bank corporations, as well as an investment outlet for investors FX Market Development roadmap of Indonesia CCP in OTC Derivatives To support FX market development and reduce market segmentation. Establish Local Currency Settlement Framework Reducing dependency on USD payment for international trade. Encourage product development to increase hedging Supply in domestic market To provide hedging instrument alternative for corporations to manage their risk exposure Supporting Regulations Coordination Corporate Bonds Government Bonds Medium term notes Other instruments Infrastructure (ETP, etc) Strengthening JISDOR Strengthening the credibility of JISDOR Extend the usage of JISDOR Money Broker Increase the governance of money broker Revitalize role of money broker in financial market Inter-agency Cooperation Certification of Dealer and Code of Conduct Obligation on certification for dealers Obligation to honor code of conduct Dealers training for certification On April 2016, the Minister of Finance, the Governor of Bank Indonesia, and the Chairman of the Board of Commissioners of the Financial Services Authority have launched a Coordination Forum for the Development Financing through Financial Market (FK-PPPK). The three authorities have agreed to formulate The National Strategy to Develop Indonesian Financial Market Towards 2025 which is expected to be concluded by the end of 2017/early Source: Bank Indonesia 74

76 Continuous Program on Capital Market Deepening continuously strengthened, including through capital market deepening initiatives The utilization of capital markets by domestic corporations (including financial institutions) demonstrates an increasing trend IDR tn IPO Equity Rights Issue Corporate Bonds & Sukuk Strengthening market infrastructure Expansion of Single Investor Identification (SID) coverage Development of electronic trading platform (ETP) in the debt market Development of integrated investment management system Enhancement of the clearing and settlement process Enhancement of capital market data warehouse Jan-Jun 2017 Enhancing the supply-side Simplification of public-offering requirements & procedures Development of financial market products (mutual funds, private equity funds, REITs, ABS) Development of municipal bonds Cross-border offering (harmonizing regulations with ASEAN Disclosure Standards established by ACMF) Enhancing the demand-side Expansion of the domestic investor base (conducting investor education programs) Expansion of mutual fund distribution channels, including the marketing methods of securities companies Strengthening governance Development of market players capacity Enhancement of GCG for publicly-listed companies Development of repo regulations and infrastructure Source: Financial Service Authority (OJK), July

77 Macroprudential Policy Mix to Support Growth 1 2 Effective from August 24 th, 2016, Bank Indonesia raised the lower limit of the primary reserve requirement s loan financing ratio (GWM LFR) from 78% to 80% with the upper limit unchanged at 92%, in order to support credit growth. Effective from August 29 th, 2016, Bank Indonesia relaxed the Loan to Value Ratio (LTV) and Financing to Value Ratio (FTV) on housing loans at 85-90% for the first mortgage lending facility, 80-85% for the second mortgage lending facility, and 75-80% for the third mortgage lending facility. The relaxation is only applicable to banks with nett NPL for total loan below 5% and gross NPL for property loan/financing below 5%. The rationale is to stimulate domestic demand in order to drive domestic economic growth momentum while maintaining compliance to prudential principles. House Housing Loans and Financing Based on Murabahah and Istishna Contracts Property type (m 2 ) Lending/Financing Facility First Second Third >70 m 2 85% 80% 75% m 2-85% 80% Apartment <21 m >70 m 2 85% 80% 75% m 2 90% 85% 80% <21 m 2-85% 80% Home Shop/Office - 85% 80% Housing Financing Based on MMQ and IMBT Contracts Lending/Financing Facility Property type (m 2 ) First Second Third House >70 m 2 90% 85% 80% m 2-90% 85% <21 m Apartment >70 m 2 90% 85% 80% m 2 90% 85% 80% <21 m 2-85% 80% Home Shop/Office - 85% 80% Source: Bank Indonesia 76

78 Financial Sector: Fostering Domestic Growth boosting domestic economic activities and supporting the national economic development Funding of infrastructure & priority economic sectors Enhancement of NBFI ownership in government bonds Private equity funds for infrastructure financing Asset-backed securities specifically designed for secondary mortgage financing Insurance for farmers and fishermen Capacity building of financial institutions Strengthening the capital of financial institutions to increase their financing capacity Expansion of the business lines of multifinance companies Capital requirements for rural banks based on their operational zones Development of financial products & services Expansion of the distribution channels for financial products & services Development of sustainable finance regulations Utilization of KYC information from third parties Facilitating access to capital market as a source of funding (e.g. simplification of public offering procedures) Capital market deepening initiatives Development of Islamic financial sector Strengthening the capital of Islamic financial institutions Spin-off of the Islamic business units of commercial banks Development of Islamic financial product regulations (sukuk, mutual funds, asset-backed securities) Continuous education & socialization on Islamic financial products & services Source: Financial Service Authority (OJK) 77

79 BI s Roles in Supporting Distribution of Non-Cash Social Assistance (NCSA) BI supports government s program of shifting social assistance to targeted non cash social assistance disbursement through the electronic payment system. In the future, electronic mechanism disbursement will be also applied to LPG subsidy. NCSA Programs Pilot Project Family Hope Program (Program Keluarga Harapan -PKH) Non Cash Food Assistance Smart Indonesia Program (Program Indonesia Pintar-PIP) LPG Subsidy XXYYZZ Gradual Implementation Full Implementation Interconnected & interoperable payment system 78

80 Progress of NCSA Programs Family Hope Program (Program Keluarga Harapan - PKH) The Family Hope Program (PKH) is a program that provides cash to very poor households. Rp 2 million /year will be granted for each household (hh). PKH will be granted every February, May, August, and November In December 2016, Non-Cash PKH was granted to 23% of total target of household. In 2017, PKH is targeted for 6 million hh (50% or 3 million distributed on non-cash basis and the remaining in cash basis. However, in the 2 nd semester of 2017 all PKH will be distributed on non-cash basis. Cash 50% Non- Cash 50% January 2017 PKH Target Non- Cash 100% 2 nd Semester of 2017 Prosperous Rice (Beras Sejahtera / Rastra) Rastra is a poverty alleviation and social protection program that is managed by the central government. It provides subsidized rice to low-income households. Rp 110 thousand/month will be granted for each hh as Non-Cash Rastra. For 2017, Non-Cash Rastra was targeted for 1.6 million hh (9% of total target 15.5 million hh) in 45 cities and 6 regencies. Non-cash Rastra can be used in certain stores: Toko Sembako, E-warong, and Rumah Pangan Kita. As of February 2017, Non-Cash Rastra was granted to 881 thousand hh. Non-Cash Rastra will be expanded to 10 million families in 200 regencies in As of June 2017, Non-Cash PKH was granted to 2.65 million hh (88,33% of 3 million hh). 79

81 Stronger Fundamentals Facing the Headwinds Inflation Rate (%) IDR Movement (%) Inflation controlled within the target range IDR still appreciated in September 2017 Foreign Reserves (USD bn) Significantly higher than 1998 & 2008, ample to cover 8.6 months of import and external debt repayment Sept Sep (yoy) Sep September (ytd) September Sep ,4 Non-Performing Loan/NPL (%) NPL level is below the maximum threshold of 5% More Liquid Market (%) Overnight interbank money market rate is relatively lower August 17 Aug Jul-15 August 17 External Debt (Public & Private) to FX Reserve Ratio Significantly lower than 1998 crisis Government Debt/GDP Consistently well-maintained below 30% External Debt/GDP Slightly higher than 2008, but significantly lower than x x x 100.0% % % 116.8% % % Q May Q year end position of debt/gdp ratio is projected based on GDP assumptions in APBN (Budget 2017) 80

82 Outlook of Domestic Economy Remains Robust...domestic economic growth is predicted to be higher in Economic Outlook Economy to grow in the range of % (yoy) in 2017, on the back of increased investment and consumption activities, in line with more expansive government spending Inflation is predicted to be within the 2017 inflation target of 4±1%, with the current account deficit projected below 3% of GDP Credit is expected to grow 8-10% in line with Bank Indonesia and authorities effort to promote credit distribution and corporate funding through financial markets. Economic Growth Inflation CAD (% of GDP) Credit Growth % 4.0±1% % 8-10% % 3.5±1% % 10-12% 2017 Economic Opportunities & Challenges Global Opportunities Improving global economic growth Acceleration of world trade volume Projection on commodity prices which set to remain high Challenges Further FFR hikes and fiscal reform plans in the US Geopolitical pressures in Europe and Korean peninsula Domestic Continous economic recovery process Ongoing consolidation in the corporate and banking sectors Source : Bank Indonesia 81

83 Section 6 Progressive Infrastructure Development: Strong Commitment on Acceleration of Infrastructure Provision

84 The Government has Enacted Various Reforms to Accelerate Infrastructure Provision Fiscal Reforms Institutional Reforms Regulatory Reforms Viability Gap Funding (VGF) KPPIP Direct Lending Issuance of MoF Reg. No. 223/2012. To increase project financial feasibility by contributing up to 49% of the construction cost Availability Payment Issuance of regulatory framework for annuity payment scheme by the Government (MoF Reg. No. 190/2015 for Central Gov r and MoHA Reg. No. 96/2016 for Regional Gov t.) during the concession period after the project operational by private sector in order to make the project bankable Land Revolving Fund Issuance of MoF Reg. No. 220/2010. A revolving-fund sourced from State Budget, to accelerate land acquisition Risk-sharing Guidelines IIGF has issues risk allocation and mitigation guidelines for PPP project KPPIP is actively involved in accelerating delivery of priority infrastructure projects PT. Sarana Multi Infrastruktur Merging between PT. SMI and Gov t Investment Center (PIP) to become an infrastructure funding company Indonesia Infrastructure Guarantee Fund (IIGF) IIGF has the potential to provide project guarantee for non-ppp projects PPP Unit Provide facilities to help GCA on preparing PPP project (PDF/TA) BLU LMAN The State Asset Management Agency is mandated to provide land fund for National Strategic Projects to ensure timely land acquisition process Issuance of Presidential Reg. No. 82/2015. Allow guarantee for direct lending to SOE to accelerate financial close process for infrastructure projects Land Acquisition Issuance of Presidential Reg. No. 148/2015. To stipulate land acquisition acceleration based on Law No. 2/2012 Economy Packages Conduct deregulation for issues hindering infrastructure delivery and develop a task force under CMEA to ensure the effectiveness of economic packages implementation Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 83

85 Reforms Along the Project s Life Cycle...to encourage and accelerate infrastructure project using PPP scheme Government of Indonesia Project Development Facility (PDF) Viability Funding Gap (VGF) Guarantee Fund Tax Facilities Availability Payment Land Acquisition Preparation Bidding Process Construction Project development facility contributing to assist GCA on PPP project preparation (PDF&TA) Managing entity: KPPIP, PT SMI PT IIF, and Ministry of Finance A facility with contribution to construction cost to increase project financial viability Managing Entitiy: Ministry of Finance based on GCA proposal Gov t. commitment: 49% max. Per project cost Guaranteeing Govt. contractual obligations under infrastructure concession agreements and Mof Regulation No 130/PMK. 08/2016 re: Govt guarantee for electricity project acceleration Managing entity: IIGF and MoF Govt s comitment: US$ 450 mn MoF Reg. No. 159/PMK. 010/2015 re: tax holiday for pioneer sector, such as base metal, oil refinery, basic petrochemical, machinery, renewable energy, & telco equipment industries. Sector will be further expanded Managing entitiy: Ministry of Finance A scheme in which concessionaires receive sum of money periodically from central or regional government after the completion of an asset. MoF Regulation, and MoHA Regulation on Availability Payment has been ratified. Managing entity: Ministry of Finance & Ministry of Home Affairs A facility to support land acquisition for infrastructure projects particularly projects that involve private sector Managing enitiy: Ministry of Finance, Ministry of Agrarian and Land Spatial/BPN and BLU-LMAN Gov t. commitment: US$ 12 mn (2016) Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 84

86 Efforts to Accelerate Infrastructure Provision Regulation improvement to accelerate land procurement process The Government of Indonesia issued Law No. 2 of 2012 on Land Acquisition for Public Interest, with a purpose to provide certainty about the land acquisition duration for the Government Contracting Agencies and the Investors. The Law sets an estimated 583 days maximum time to complete the land acquisition process. For its implementation, the Law No. 2 of 2012 was supported by the Presidential Regulation No. 71 of 2012 on Land Acquisition Implementation for Developing Public Facilities, which has been revised into the Presidential Regulation No. 30 of The Amendment to the Regulation allows a Business Entity to allocate funding for a land acquisition which can be reimbursed by the Government following the completion of land acquisition process. With this Regulation, the land acquisition process is expected not to be delayed by the unallocated budget or the delay on the budget disbursement. Law No. 2/2012 was successfully applied in: 1. Palembang Indralaya section of the Trans Sumatera Toll Road Project 2. Java North Line Double Track Rail Project Land Procurement Process as Stipulated in Law No. 2 of 2012 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 85

87 Efforts to Accelerate Infrastructure Provision the establishment of Indonesia Asset Management Agency (LMAN) On December 12 th, 2016, Indonesia Asset Management Agency (Lembaga Manajemen Aset Negara/LMAN) has been launched to optimize the use of state assets. LMAN should plan for funding and utilization of land banks as well as pay compensation for land acquisition to support the government s infrastructure development program Legal Basis 1. Government Regulation No.27/2014 on the Management of State/Region Property 2. Finance Minister Regulation No.219/PMK/2015 on the Governance and Organization of State Asset Management 3. Finance Minister Regulation No.1319/KMK.05/2015 on the Appointment of Indonesia Asset Management Agency as Government Agency to Implement Financial Management of Public Service Agency Mandate 1. Property Management 2. Land Funding for National Strategic Project Portfolio Assets 1. Asset of ex-pertamina: LNG Badak Bontang, LNG Arun, and Tarogong Land 2. Asset of ex-indonesian Bank Restructuring Agency (BPPN) Other portfolio: Asset of ex-asset Management Company (PPA) and ex- Contractor Cooperation Contract (KKKS) Source: Ministry of Finance 86

88 Program Project Under Presidential Reg. No.3/2016 j.o. the Presidential Reg. No.58/2017, 245 projects and 2 programs are listed as PSN Projects Projects US$49.0 Bn US$43.4 Bn Projects 27 US$13.0 Bn Projects 13 US$34.2 Bn 93 Projects National Programs Projects Proyek Projects US$81.9 Bn US$100 Bn Projects 15 US$0.8 Bn PSN includes 15 sectors at project level and 2 sectors at program level ROAD RAILWAY SEAPORT AIRPORT Projects Projects Projects Project s INDUSTRI-AL ZONE HOUSING HOUSING WATER & SANITA- TION DAM IRIGASI IRRIGA- TION TECH- NOLOGY SMELTER OIL REFINERY Projects Projects Projects Projects Projects Projects Projects Projects Projects FISHERY 1Project SEA DIKE 1Project Electricity 1 PROGRAM Small- Medium Airplane 1 PROGRAM Exchange rate: US$ 1 = IDR 13,000 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 87

89 PSN may receive privileges as stipulated in the Presidential Reg. No. 3/2016 j.o. the Presidential Reg. No. 58/2017 Acceleration of Non- State Budget Projects Determination of National Strategic Projects Settlement of Legal Issues Permit & Nonpermit Completion Accelerate Goods and Service Procurement Spatial Planning Problems and Hindrance Completion Land clearing acceleration SOE s Assignment Local Content Utilization Additional Facilities Existing Facilities Projects Monitoring via KPPIP IT System Government Guarantee Provision Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 88

90 IDR 4,197 tn Progress on 245 National Strategic Projects LOCATIONS The Estimated Investment Cost of National Strategic Projects 1. Sumatera Java Kalimantan Sulawesi Bali & Nusa Tenggara Maluku & Papua National 12 State Budget (IDR525 tn) SOE (IDR1,258 tn) Notes: The investment cost was calculated for 245 NSP. Excluding cost of 16 NSP with unknown investment cost. Road Communi -cation SECTORS National Borders Economic Zones Irrigation Private (IDR2,414 tn) Progress of National Strategic Projects (as of June 2017) % 5 projects are completed Housin g Energy Fisheries/ Maritime Water Supply Airport Sea dike % 53% 130 projects are under construction 2 12 projects are during transaction 100 projects are in preparation Seaport Railway Dams Smelter Power Aircraft industry 5% Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 1: Under Presidential Reg. No.58/2017 (to amend Presidential Reg. No.3/2016), PSN list has been revised 2: Including one electricity program under construction category (39% of electricity program has reached construction per April 2017) 89

91 Progress on 37 Priority Projects From the revised National Strategic Projects, the Government has selected a list of 37 Priority Project to be the focus of infrastructure provision. Construction Transaction Preparation 1. Balikpapan-Samarinda Toll Road 2. Manado-Bitung Toll Road 3. Panimbang-Serang Toll Road 4. Trans Sumatera Toll Road (15 sections) 5. Probolinggo Banyuwangi Toll Road 6. Yogyakarta Bawean Toll Road 7. SHIA Express Railway 8. MRT Jakarta South-North Line 9. Makassar-Parepare Railway 10. Light Rail Transit (LRT) Jakarta-Depok- Bogor-Bekasi 11. LRT South Sumatera 12. East Kalimantan Railway Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 26. Tuban Refinery 13. LRT DKI Jakarta 27. Revitalization of the Existing Refineries 14. Kuala Tanjung International Port Hub (Balikpapan, Cilacap, Balongan, Dumai, Plaju) 15. Bitung International Port Hub 28. Lapangan Abadi WK Masela 16. Patimban Port 29. Jambaran-Tiung Biru Gas Field Utilization 17. Inland Waterways Cikarang-Bekasi-Laut (CBL) 30. Indonesian Deepwater Development (IDD) 18. Palapa Ring Broadband 31. LNG Train 3 Development 19. Batang, Central Java Powerplant 32. West Semarang Water Supply System 20. Central West Java Transmission Line 500 kv 33. Jakarta Sewerage System 21. Indramayu Powerplant 34. National Capital Integrated Coastal 22. Sumatera 500 kv Transmission Line Development (NCICD) Phase A 23. Mulut Tambang Powerplant (5 Provinces) 35. Drinking Water Supply System Jatiluhur 24. Gas Based Powerplant (18 Provinces) 36. Drinking Water Supply System Lampung 25. Bontang Refinery 37. Waste to Energy Program (8 cities) Note: New Priority Projects are highlighted in the red color 90

92 Progress on 37 Priority Projects Progress of 37 Priority Projects (as of September 2017) Recent Milestones Patimban Port 24% 46% 17 projects are in construction 11 projects are in transaction Project loan pledge (1 st stage construction and monitoring) has been done by the Government of Japan in August projects are in preparation MRT North South Jakarta 30% Loan proposal (2 nd phase construction and 1 st phase additional construction) amounted USD 1,869 billion has been included in the Green Book published on July 2017 and approved by Regional Parliament Funding Scheme of 37 Priority Projects 40% 9% Rp ,75 Trillion from Private 51% Rp. 968,92 Trillion from SOE Rp. 213,42 Trillion from State/Regional Budget, including loans Cilacap Refinery Revitalization Letter of recommendation regarding spatial and reroute of road trace has been published and environmental lisence has been issued by Ministry of Environment and Forestry. West Semarang Water Supply System Ministry of Finance has issued Letter of assignment to PT. Sarana Multi Infrastruktur (PT. SMI) to provide project development facility on September 29 th Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 91

93 Energy Sector: the Progress of MW Program Average economic growth of 6.7% requires 7,000 MW / year or 35,000 MW / 5 years (Kepmen ESDM No. 0074/2015 on RUPTL ) Debottlenecking through regulation: 1. Regulation No.1/2015 concerning electricity supply cooperation & joint utilization of the electrical network among license holders. 2. Regulation No.3/2015, concerning Procedures of Purchasing Electrical Power and benchmark prices for Electrical Power through the Direct Selection & Appointment. Cabinet Meeting Progress of 35,000 MW Launching MW by the President in Goa Beach Sanden DIY 17 Dec 14 Jan 15 Jan Mar 15 4 May 15 Cabinet Meeting There s electricity crisis in Indonesia, requires construction of large capacity plant " Sumatera PLN: 1,100 MW Private: 8,990 MW Transmission: 18,729 ckt.km Substation: 35,521 MVA Kalimantan PLN: 900 MW Private: 1,735 MW Transmission: 5,604 ckt.km Substation: 3,500 MVA Jawa & Bali PLN: 5,000 MW Private: 13,697 MW Transmission: 9,185 ckt.km Substation: 66,265 MVA Sulawesi PLN: 2,000 MW Private: 1,470 MW Transmission: 5,275 ckt.km Substation: 4,390 MVA Nusa Tenggara PLN: 670 MW Private: 0 MW Transmission: 2,347 ckt.km Substation: 1,410 MVA 35,000 MW Program Distribution Maluku PLN: 260 MW Private: 12 MW Transmission: 653 ckt.km Substation: 620 MVA Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) Papua PLN : 220 MW Private: 0 MW Transmission: 364 ckt.km Substation: 460 MVA Source: PLN The progress so far: June 17 No Phase MW % 1 Operating Construction 14, Signed Power-purchase Agreement 8, Procurement 5, Planning 6,

94 Acceleration of MW Program The Government has issued Presidential Regulation No. 4/2016 on Electricity Infrastructure Acceleration to accelerate power projects Government Support (outside Guarantee) Provision of Primary Energy Provision of Renewable Energy Simplicity of Permits and non-licensing Spatial Planning Land acquisition Resolution on Legal Matters Government Assignment Local Content Obligation on the usage of local content through an open book system, price guideline, reverse engineering or other methods to maximise the local content. PT PLN Provision of Electricity 1 2A 2B EPC Powerplant and Transmission PLN Subsidiary (Joint Venture) SJKU* Ministry of Finance Independent Power Producer Strengthen PLN s Balance Sheet Refinancing Hedging Financial Asset Optimization Loan from independent lenders Bond issuance by PT PLN Strengthen Equity Direct Lending Equity Injection by the Government Asset Revaluation Direct Lending Other types of funding PT PLN s divident allocation Company Tax Holiday *)SJKU=Surat Jaminan Kelayakan Usaha/ Business Viability Guarantee Letter Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 93

95 Significant Progress on Infrastructure Projects Roads Improving Monitoring System on Infrastructure Projects 1 KPPIP developed an integrated IT System for monitoring of national strategic and priority projects, providing database on projects latest status which can be effectively utilized for monitoring and decision-making purposes. Dams Trans-Sumatra Toll Road Merah Putih Bridge, Ambon Drinking Water Processing Database Project information such as map, track, existing study and latest project status. Platform data outlook that is efficient and functional using a user-friendly framework. Jatigede Dam (Operational) Umbulan Drinking Water Provision System, East Java Transportation Jakarta MRT Project 2 Terminal 3 Ultimate Soekarno-Hatta 2 An integrated IT system with monitoring capacity for stakeholders, so that they can have real time data. Record decisions related to projects and synchronize the implementation schedule that can be utilized by stakeholders. New Tanjung Priok Port Project 2 Nop Goliat Dekai, Papua 1 Source: Committee for Acceleration of Priority Infrastructure Delivery (KPPIP) 2 Not funded from National Budget 94

96 Investment in Iron Ore, Alumina and Bauxite Smelter Existing Iron Ore Refinery Facility No. Company Product Ore Input Capacity (ton) Concentrate Input Capacity (ton) Investment (USD mn) Progress Completion Date 1 PT DPS Sponge iron % PT MJIS Sponge iron, slab, billet % PT SBP Cold Bricket Iron % 2017 Upcoming Iron Ore Refinery Facility No. Company Product Ore Input Capacity (ton) Concentrate Input Capacity (ton) Investment (USD mn) Progress Completion Date 1 PT SILO Sponge iron % PT RS Sponge iron ,9 0% 2020 Existing Alumina and Bauxite Refinery Facility No. Company Product Input Capacity (ton) Investment (US$ mn) Progress Completion Date 1 PT Indonesia Chemical Alumina Chemical Grade Alumina ,49 100% PT Well Harvest Winning Smelter Grade Alumina (Phasa 1) (Phase 2) 1,1 Phase 1 : 100% Phase 2 : 0% 2016 (Phase 1) 2017 (Phase 2) Completed but not operating Completed and operating Source: Ministry of Energy and Mineral Resources, July

97 Investment in Nickel Smelter Source: Ministry of Energy and Mineral Resources, July

98 Financing Needs and Schemes Infrastructure Financing Need General criteria for financing schemes *(USD bn) Government Budget is used for basic infrastructure projects, mainly for projects that are economically feasible but financially are not. 100% 41,3% ,7% 22,2% ,5% SOE scheme is used for projects managed under SOEs (electricity, toll roads, oil, etc.) to leverage public funding channeled through capital injections (PMN) and empower SOEs PPP scheme is mainly targeted for projects that are both economically and financially feasible. The government may provide financial support to make certain projects financially feasible. Financing Needs Gov t Budget Financing Gap SOE Private PPP scheme and facilities provided to PPP Projects Source: Ministry of Finance Financial Facilities Provided to SOEs Infrastructure Projects The government may appoint certain SOEs to assign specific infrastructure projects To support the infrastructure provision through the SOEs, the government provide a number of financial facilities, such as: Capital Injection (PMN) Lending Credit Guarantees Guarantees for SOE Direct Lending Business Viability Guarantees 97 Source: Ministry of Finance 97